Economic discrimination explained

Economic discrimination is discrimination based on economic factors. These factors can include job availability, wages, the prices and/or availability of goods and services, and the amount of capital investment funding available to minorities for business. This can include discrimination against workers, consumers, and minority-owned businesses.

History

A recognition of economic discrimination began in the British Railway Clauses Consolidation Act of 1845, which prohibited a common carrier from charging one person more for carrying freight than was charged to another customer for the same service. In nineteenth-century English and American common law, discrimination was characterized as improper distinctions in economic transactions; in addition to the above issue in the British Railway Clauses, a hotelier capriciously refusing to give rooms to a particular patron would constitute economic discrimination. These early laws were designed to protect discrimination from Protestants who might discriminate against Catholics or Christians who might discriminate against Jews.

By the early twentieth century, economic discrimination was broadened to include biased or unequal terms against other companies or competing companies. The Robinson-Patman Act (1936), which prevents sellers of commodities in interstate commerce from discriminating in price between purchasers of goods of like grade and quality, was designed to prevent vertically integrated trusts from driving smaller competitors out of the market through economies of scale.

It was not until 1941, when President Franklin D. Roosevelt issued an executive order forbidding discrimination in employment by a company working under a government defense contract, that economic discrimination took on the overtones it has today, which is discrimination against minorities. By 1960, anti-trust laws and interstate commerce laws had effectively regulated inter-corporate discrimination so problematic in the late nineteenth and early twentieth centuries, but the problem of discrimination on an economic basis against minorities had become widespread.

Causes

There is a wide range of theory concerned with the root causes of economic discrimination. Economic discrimination is unique from most other kinds of discrimination because only a small portion of it is due to racism, but rather is due to what has been called a "cynical realization that minorities are not always your best customers". There are three main causes that most economic theorists agree are likely root causes.

Animosity

Racism, sexism, ageism, and dislike for another's religion, ethnicity or nationality has always been a component of economic discrimination, much like all other forms of discrimination.

Most discrimination in the US and Europe is claimed to be in terms of racial and ethnic discrimination—mostly blacks and Hispanics in the USA, Muslims in Europe. In most parts of the world, women are held to lower positions, lower pay, and restricted opportunities of land ownership or economic incentive to enter businesses or start them.[1]

This form of economic discrimination is usually leveled at whatever groups are held to be "in power" at the time. For example, in America, discrimination is often considered to be the province of Caucasians, while in Saudi Arabia, it's men who are considered discriminatory. One study suggests that the increase in equal opportunity lawsuits has reduced this kind of discrimination in America by a large amount.[2]

Cost/revenue

There is a certain opportunity cost in dealing with some minorities, particularly in highly divided nations or nations where discrimination is tolerated.

A second common reason for this kind of discrimination is when the worker or consumer is not cost-efficient. For example, some stores in the US Northwest do not stock ethnic foods, despite requests for such, since they feel the cost is too high for too low a return.

Additionally, the illegal immigration debate in the US has resulted in some businesses refusing to hire such workers based on the likelihood that they would be fined and litigated against.

Efficiency

In some cases, minorities are discriminated against simply because it is inefficient to make a concerted effort at a fair allocation. For example, in countries where minorities make up a very small part of the population, or are on average less educated than the population average, there is rarely an attempt to focus on employment of minorities.

The Equal Opportunity Employment act in the US has almost reduced this sort of rationale for discrimination to nothing, according to recent studies.[3]

The relations between economic theory, efficiency and discrimination, or "discriminatory tastes"[4] are much more problematic.[5]

Forms

There are several forms of economic discrimination. The most common form of discrimination is wage inequality, followed by unequal hiring practices. But there is also discrimination against minority consumers and minority businesses in a number of areas, and religious or ethnic discrimination in countries outside of the United States.[6]

Against workers

Most forms of discrimination against minorities involve lower wages and unequal hiring practices.

Wage discrimination

Several studies[7] have shown that, in the United States, several minority groups, including black men and women, Hispanic men and women, and white women, suffer from decreased wage earning for the same job with the same performance levels and responsibilities as white males. Numbers vary wildly from study to study, but most indicate a gap from 5 to 15% lower earnings on average, between a white male worker and a black or Hispanic man or a woman of any race with equivalent educational background and qualifications.

A recent study[1] indicated that black wages in the US have fluctuated between 70% and 80% of white wages for the entire period from 1954–1999, and that wage increases for that period of time for blacks and white women increased at half the rate of that of white males. Other studies[2] show similar patterns for Hispanics. Studies involving women found similar or even worse rates.[8]

Overseas, another study indicated that Muslims earned almost 25% less on average than whites in France, Germany, and England, while in South America, mixed-race blacks earned half of what Hispanics did in Brazil.[9]

Most wage discrimination is masked by the fact that it tends to occur in lower-paying positions and involves minorities who may not feel empowered to file a discrimination lawsuit or complain.

Hiring discrimination

Hiring discrimination is similar to wage discrimination in its pattern. It typically consists of employers choosing to hire a white candidate over a minority candidate, or a male candidate over a female candidate, to fill a position. A study of employment patterns in the US indicated[3] that the number of hiring discrimination cases has increased fivefold in the past 20 years. However, their percentage as a whole fraction of the workforce hirings has decreased almost as drastically. With the stiff laws against discrimination in hiring, companies are very careful in who they hire and do not hire.

Even so, studies[3] have shown that it is easier for a white male to get a job than it is for an equally qualified man of color or woman of any race. Many positions are cycled, where a company fills a position with a worker and then lays them off and hires a new person, repeating until they find someone they feel is "suitable"—which is often not a minority.[8]

While hiring discrimination is the most highly visible aspect of economic discrimination, it is often the most uncommon. Increasingly strong measures against discrimination have made hiring discrimination much more difficult for employers to engage in. However this is only the case in formal hiring arrangements, with corporations or others subject to public scrutiny and overview. Private hiring, such as apprenticeships of electricians, plumbers, carpenters, and other trades is almost entirely broken down along racial lines, with almost no women in these fields and most minorities training those of their own race.

Against consumers

Most discrimination against consumers has been decreased due to stiffer laws against such practices, but still continues, both in the US and in Europe. The most common forms of such discrimination are price and service discrimination.

Discrimination based on price

Discrimination based on price is charging different prices for goods and services to different people based on their race, ethnicity, religion, or sex. It should not be confused with the separate economic concept of price discrimination. Discrimination based on price includes, but is not limited to:

increased costs for basic services (health care, repair, etc.)

increased costs for per diem charges (such as charging one person $40 while charging another person $100 for exactly the same service provided)[10]

not offering deals, sales, rebates, etc. to minorities

higher rates for insurance for minorities

Most charges of discrimination based on price are difficult to verify, without significant documentation. Studies indicate that less than 10% of all discrimination based on price is actually reported to any authority or regulatory body, and much of this is through class-action lawsuits.[10] Furthermore, while a number of monitoring services and consumer interest groups take an interest in this form of discrimination, there is very little they can do to change it. Most discrimination based on price occurs in situations without a standardized price list that can be compared against. In the cases of per diem charges, this is easily concealed as few consumers can exchange estimates and work rates, and even if they do the business in question can claim that the services provided had different baseline costs, conditions, etc.

Discrimination based on price in areas where special sales and deals simply are not offered can be justified by limiting them to those with strong credit ratings or those with past business with the company in question.

Services discrimination

Although price discrimination mentions services, service discrimination is when certain services are not offered at all to minorities, or are offered only inferior versions. According to at least one study,[11] most consumer discrimination falls into this category, since it is more difficult to verify and prove. Some assertions of discrimination have included:

offering only high-cost plans for insurance or refusal to cover minorities

refusing to offer financing to minorities

denial of service

Against businesses

Minority owned businesses can also experience discrimination, both from suppliers and from banks and other sources of capital financing. In the US, there are tax benefits and even public relations benefits from having minority-owned businesses, so most instances of this occur outside of the United States.[12]

Women of color are starting businesses at rates three to five times faster than all other businesses, according to an article from Babson college on Newswise.. May 9, 2008. State of Businesses Owned by Women of Color. 2008-05-12. However, once in business, their growth lags behind all other firms, according to the results of a multi-year study conducted by the Center for Women's Business Research in partnership with Babson College exploring the impact of race and gender on the growth of businesses owned by women who are African-American, Asian, Latina and other ethnicities.

Discrete usage discrimination

This form of discrimination covers suppliers providing substandard goods to a business, or price gouging the business on purchases and resupply orders.

Capital investment discrimination

A more significant source of perceived discrimination is in capital investment markets. Banks are often accused of not providing loans and other financial instruments for inner-city minority owned businesses.[12] Most research indicates that the banking industry as a whole is systemic in its abuse of the legal system in avoidance of "high risk" loans to minorities, pointing out that banks cannot provide facts backing up their assertions that they deny such loans to a high failure rate.[13]

On the other hand, most financial institutions and some economists feel that all too often, banks are accused unfairly of discrimination against minority owned businesses when said business is simply not worth such a credit risk, and that no one would find such a decision discriminatory if the business were not minority owned. These charges of reverse racism or prejudicial analysis are a longstanding source of controversy in the study of economic discrimination.[14]